Bankruptcy Court

Back in February, the Sixth Circuit Court of Appeals agreed to hear a set of challenges from employee unions and pensioners to Detroit’s eligibility to file for bankruptcy. This week, the city is asking the court to consolidate them and allow more time of the city’s response.

In a motion filed Tuesday, attorneys for the city said:

Administrative consolidation is appropriate here. While there are nominally seven different appeals pending before this Court, each challenges the same underlying Bankruptcy Court order. The filings in each appeal are relevant to the others. There is no reason for the Court to manage separate dockets or for the parties to have to file identical materials in each, as this motion itself demonstrates.

Meanwhile, lawyers for the retirees are again asking the Court of Appeals to expedite the case, given the ambitious schedule for bankruptcy proceedings in the Detroit court. The Sixth Circuit accepted the appeal (and declined to expedite it) on Feb. 21, the same day the city filed its Plan of Adjustment. The retirees’ attorneys write:

Since then, however, circumstances in the bankruptcy court have materially changed that now warrant setting oral argument in these appeals for the Court’s June session. …

If the former and current employees are successful, they could halt or impair the city’s bankruptcy case, which is currently scheduled for a final hearing July.

Bill Nowling, spokesman for Emergency Manager Kevyn Orr, told Next Chapter the city would “let our court pleadings speak on this matter.”

But Ryan Plecha, an attorney representing retirees, said this:

The Retiree Association Parties (along with other appellants, including the Retiree Committee and Retirement Systems) have filed motions to expedite the appellate process. This is an ironic reversal of roles, from the parties usual positions on expedition. Not only is the City trying to delay the proceedings, but the City is also trying to squeeze all of the appellants into one brief or briefs with severe and unjustified page restrictions. This is in exact contradiction to the unique roles played by each the in the eligibility trial, which was conducted with minimal duplication. Justice cannot allow the City’s attempt to homogenize the appellate process. In essence, the City is trying to delay the appellate process as much as possible to steam roll through plan confirmation process and essentially strip retires of their appellate rights and in turn drastically reduce retiree pensions and benefits.

Objections are currently getting accepted by Federal Bankruptcy Judge Steven Rhodes to Detroit Emergency Manager Kevyn Orr’s Plan of Adjustment. While highly-paid lawyers make formal filings in legalese, many of the city’s elderly pensioners are taking the time to compose hand-written letters to Rhodes.

Here is a sampling of what’s been filed so far:

Retired Detroit Water and Sewerage Employee Robert Cox pleads with the judge to keep in mind the rising costs of basic necessities and that the proposed 34 percent reduction in his benefits would cause financial hardships for him and his family.

Retiree David White is an octogenarian who worked for Detroit for a quarter of a century. His wife is also a retiree from the city. He explains to Rhodes that he and his wife did not cause the bankruptcy and at his age starting over is impossible. Therefore cutting their benefits would “be traumatic and devastating.”

Mattie Johnson, of Detroit, worked for the city for more than three decades. Johnson tells the court that the proposed reduction in benefits would become a shell game. If the pension is reduced, Johnson says she would have to seek other public benefits such as food stamps.

Elouis Abram tells the judge that between the loss of the pensioners’ health care plan and the proposed 34 percent benefit reduction, he does not know where to turn. Abram itemizes how much more he now has to pay for health care for his multiple medical conditions. Abram says he can’t believe how poorly senior citizens have been treated.

Retiree Joyce Johnson-Jones asks Rhodes for “mercy” when it comes to cutting retiree benefits. She attributes the loss of her house to previous cuts made by Mayors Kwame Kilpatrick and Dave Bing.

The 75-year-old Frances Teague tells the court that cuts to her pension would be devastating to her and her mentally challenged husband who suffers from dementia. She points out that many people make career choices based on benefits to be received later in life.

The Moratorium NOW! Coalition, a group originally formed to stop foreclosures, evictions and utility shutoffs in Detroit, is stepping in to help people who object to the city’s proposed Plan of Adjustment and Disclosure Statement and want to share their opinions and insight with Bankruptcy Judge Steven Rhodes.

At the workshop, the groups will share their readable instructions and a form that can be used to file an objection with the court. Monday’s workshop will further explain the process to formally object. The deadline for such filings for retirees is June 30.

The Michigan Citizen, one of Detroit’s African-American newspapers, has often had a lonely voice in its sustained criticism of the state’s emergency manager law and Kevyn Orr’s actions authorized by it. In the paper’s most provocative coverage of Orr’s first 12 months, the weekly publication reports on its staff sit-down interview with Orr, who visited the Citizen’s offices last week.

The Citizen posed and Orr answered an array of questions, including some in ways the mainstream media haven’t or, frankly, wouldn’t: “Do you see yourself intervening in evictions or any of the suffering?” and “Some people can hear (your policies) as wanting a whiter, wealthier city. What do you think about that criticism?”

Like it or not, those are the uncomfortable questions some Detroit residents and sympathetic observers have as they view the daily poverty, unemployment and disenfranchisement in most of the city. While downtown enjoys unprecedented investment and white hipsters are lauded in the local and national media, for example, where are the solutions for the unemployed, undereducated and poverty-stricken?, they ask. The Citizen is a voice that can steer the collective conversation about Detroit to include policy perspectives and proposals rooted social justice. In the paper’s ongoing coverage and now timely conversation with Orr, the Citizen hopes, in part, to broaden the framework by which the legacy of Michigan’s emergency manager system will be evaluated.

To his credit, Orr, who has lived in the Miami and Washington D.C. areas, spoke to the Citizen of his ideal vision of Detroit: a widely diverse, safe urban area with balanced books and manageable debt. It’s his job as emergency manager, he says, to focus on the balance sheet and steer the city through a bankruptcy toward a sustainable, healthy financial future. In doing so, he’s proposing up to 80 percent cuts to banks and lenders to free up money for city services. The financial institutions predictably don’t like it:

“They’re going to try to defeat this plan because their view is they’d rather take that money. And I’ve tried to restore it,” Orr says.

This capacity, to think in a logic that excludes the consequences of your decisions on the lives of others, characterizes much of what we saw in Mr. Orr. This was most evident when he talked of pension cuts. Here he stressed, ‘There are only 20,000 pensioners in a city of 700,000.’ This is just a few people. A sacrifice for the many.

This kind of numbers game is chilling.

History will determine what the state law and Orr’s tenure will ultimately mean to the city … and if the Michigan Citizen was among the first to realize the consequences.

Plenty, says the attorney who is representing the official retirees’ committee in Detroit’s bankruptcy case. She’s heard the city’s side in court, in the media and in other discussions, and she’s got her own points to make publicly on behalf of the retirees.

Attorney Carole Neville

She and Ryan Plecha, another lawyer for retirees, will be guests on The Craig Fahle Show between 9 and 11 a.m. Thursday. Tune it to 101.9 FM or online to hear them. They’ll also share some of the objections the pensioners are raising in their written objections to the bankruptcy judge.

Neville also gave us a preview of some of her thoughts about the Detroit situation.

Here are a few:

* “They’re neglecting the health care completely,” she says of the media and the city representatives. “Basically the city paid about $160 million a year for health care for its retirees, and then cut that during the Chapter 9 to $30 million a year, and it’s planning future cuts under the plan. There really is not going to be a significant health care program for retirees post-plan.”

So that means as pensioners’ checks shrink, they’ll also need to pick up a greater share of their health care costs. But just how much, no one knows.

“Right now there’s very little in the plan to be able to describe what the health care benefits in the future will look like. It’s four or five sentences,” she says. “It hasn’t been negotiated at all.”

* Some of the retirees, including police and fire, are not eligible for Medicare.

“Some of them are really going to be hit terribly,” Neville says. For the pensioners who are: “Medicare is not adequate to cover all the costs of health care, and people have to buy supplementals and that is an out-of-pocket cost that the city is not willing to pick up.”

Not willing or can’t?

“Can’t is a relative word,” Neville says. “It’s a question of priorities.”

* The citys’ current plan cuts annual increases to pension payments that were similar to cost-of-living adjustments but not tied directly to inflation or another indicator, Neville says.

“For younger retirees, that loss is huge,” she says. “And it’s not being mentioned in any of the discussions.”

* How attorneys are going to explain to the pensioners what they’re voting on when all 176,000 creditors receive the informational packets and ballots. “You have to drop a lot of the bankruptcy code references. As if people are going to understand what that means?” she says. “All of those things are going to need to be explained in plain English.”

Neville and her team are working to determine what each pensioner is facing under the city’s proposed Plan of Adjustment, which is still partially based on the “grand bargain.” That’s the yet-to-be-finalized deal that brings in $350 million of state money, $100 million from the Detroit Institute of Arts and $365 million from the foundation community. The funds would be allow the city to retain the DIA collection instead of selling it to fund pension payments.

“Our intention is to calculate what people’s pensions are now, what their pension is likely to be in the future if the DIA money comes in and if there’s no excess allocation. We’re going to give them the numbers,” Neville says.

The deal between the city and two investment banks drops the city’s obligation on interest rate swaps debt from $288 million to $85 million, according to court filings. Judge Steven Rhodes has rejected two previous agreements of $230 million and $165 million as too generous to the lenders, UBS AG and Merrill Lynch.

But if this deal is approved, that means the city has one class of creditors agreeing to its plan, which allows the plan to be “forced through” instead of being agreed upon by all groups of creditors, including pensioners.

Neville, who has represented creditors’ committees in dozens of bankruptcy cases, called the swaps deal “one of the most outrageous things” she’s ever seen.

Detroit’s Emergency Manager Kevyn Orr is ramping up the rhetoric about the Detroit Water and Sewerage Department, pushing the idea that it could be sold and privatized if the city doesn’t reach a regional agreement with suburban communities.

“I do think we’re at a crossroads now having had this discussion for decades about DWSD,” Orr told The Detroit News in an interview Tuesday. “We’re going to run on parallel tracks. We’re not walking away from the creation of an authority. We’re going to start looking at other alternatives as well.”

With Orr’s Plan of Adjustment calling for paying pennies on the dollars to creditors, including bond holders, and slashing pension benefits by almost 30 percent for some retirees, the governor-appointed EM needs to also find revenue generators for the cash-strapped city. DWSD is one of his few options with such potential.

“By and large, this hasn’t been a negotiation,” said Robert Daddow, deputy county executive for Oakland County. “It’s been a stampede to an end point. We’ve been stuck in first gear for a long time because everything we put on the table gets rejected.”

Some of the obstacles, they say, are DWSD’s roughly “$1.5 billion in operating losses over the past seven years; more than $500 million in abandoned projects, and more than $500 million to terminate bad debt; $142.5 million in unpaid water bills; and fears that an authority’s dismal credit rating would make it difficult to issue bonds.” There are also the potential $60 million annual payments that Crain’s Detroit Business reported could be owed by the suburbs for DWSD pensions if a regional deal isn’t worked out.

With an April 18 deadline set by Bankruptcy Judge Steven Rhodes for the city’s final disclosure statement “resolving any objections that the Court has sustained,” the parties continue to meet. But there are no public indications that a deal is anywhere near done.

After two court hearings in the last week, Bankruptcy Judge Steven Rhodes issued his order establishing the procedure for “solicitation and tabulation of voting” on the city’s Plan of Adjustment by its some 176,000 creditors including pensioners.

The deadline for determining which creditors are eligible to vote is April 14. Each eligible creditor will receive a solicitation package, to be sent no later than April 28. That package will include a copy of the Confirmation Hearing Notice, a CD-ROM containing the Plan of Adjustment, the Disclosure Statement and all exhibits, a ballot with return envelope and other relevant materials.

The voting deadline is June 30, with the bankruptcy trial scheduled to begin July 16.

The city has a contract with Kurtzman Carson Consultants, which will handle the mailings, tabulations and other administrative duties. Hired in July 2013, KCC had been paid $608,163 as of March 6, according to Bill Nowling, spokesman for Emergency Manager Kevyn Orr.

Attorneys representing the city and the Official Committee of Retirees told Bankruptcy Judge Steven Rhodes today that they have reached an agreement about payment of an insurance policy for the committee’s attorneys. The policy will protect the lawyers from lawsuits resulting from their handling of the bankruptcy case.

Terms of the agreement were not disclosed during the short hearing, but a court filing from last month stated the policy would cost $602,250 with $250,000 to be held in escrow and refundable. “The Committee Members are concerned with their exposure to frivolous litigation and believe that procuring the Insurance Policy will ensure that the Committee remains functional and balanced,” attorneys for the committee wrote in a motion seeking payment from the city for the policy.

Rhodes last week was critical of the $602,250 request.

Attorneys today did not reveal terms of the agreement, but said a motion seeking Rhodes’s approval would be filed this week.

PRWeek, the online publication for the public relations industry, outlines the roles of two public relations firms in the city’s bankruptcy in this article that focuses on how the city is messaging that it’s a good investment.

And not just a good investment for those looking to make big bucks or “a local or national political audience,” explains Bill Nowling, spokesman for Emergency Manager Kevyn Orr, who talked to PRWeek for the piece. The “investors,” he says, are the residents as well as the pensioners and other creditors who will vote on the city’s Plan of Adjustment that was filed in bankruptcy court last month.

It’s the latest phase in the message plan, that has evolved, Nowling says:

“We have spent an enormous amount of time coming up with a very specific and detailed plan of adjustment that tries to treat all of our creditor classes as fairly as possible, keeping in mind that the number one priority of the city is to continue to provide and improve services for its residents,” said Nowling. “That is the whole point of going into bankruptcy.”

The two firms contracted by the city are the Farmington Hills-based Duffey Petrosky and Abernathy MacGregor. Nowling, who is “on loan” to Orr, so to speak, is the director of public affairs and issues management at Duffey. Abernathy MacGregor, with offices in New York, Los Angeles, Houston and San Francisco, specializes in “high-end corporate, strategic and financial communications” for crises management, bankruptcies and corporate restructuring.

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